Flood Accounting Provision

1. Introduction

During late December 2010 and early January 2011, significant floods occurred in Queensland with three quarters of the state declared a disaster zone affecting thousands of people and businesses. According to a survey conducted by Chamber of Commerce and Industry Queensland (2011), the average loss to property, plant, equipment, building and motor vehicles for businesses is $589,000. On average, a loss of $908,000 or approximately 11% of their annual turnover incurred for the businesses that are directly affected by the floods. Unfortunately, our company also suffered significant loss due to the floods.

In this report, the accounting implication of the following items, which are affected by Queensland flood, will be discussed. Part of the inventory, plant, property and equipment are damaged or destroy due to the direct impact of Queensland floods, along with cleanup cost after the flood. The company have also suffered indirect impact by the floods through affected customers and affected employees. The company is fully insured and eligible for the government assistance. In accordance with Australian Accounting Standard Board, this report discusses the recognition and measurement issues of these items for the preparation for financial report for the financial year ending 31 March 2011. Recommendations are also given for each of these items.

2. Recognition, measurement and disclosure issues

2.1 Items of inventory destroyed or damaged

The destroyed or damaged inventory can be classified into two groups.

The inventory, which is damaged to the extent that it can no longer be sold or distributed, will need to be written off. The loss of written down inventory will be recognised as expense at 31 March 2011.

The damaged inventory, which is still in saleable condition, can be sold at discount. According to AASB 102 Inventories (2006), if the net realisable value of the inventory fell below the cost of the inventory, the net...